Consumer prices held steady in May, helped by a drop in what drivers paid at the gas pump, the government said Wednesday in a bit of welcome news for the White House worried about inflation’s impact on President Joe Biden’s reelection bid.
The consumer price index, the most high-profile measure of inflation, was unchanged from April to May, the Bureau of Labor Statistics said, a pause that brought the CPI’s growth over the last year down to a 3.3% rate. The flat reading in May was the best monthly showing since July 2022.
Inflation has slowed sharply from the recent peak in 2022, but high prices have meant voters still see an otherwise robust economy negatively, according to a poll by The Economist/YouGov.
However, a spokesman for the Biden campaign said the CPI report showed Biden’s economic policies were working.
“Joe Biden inherited an economy on the brink from Donald Trump and is now leading the great American comeback. Under his leadership, wages are rising, inflation is being reined in, and America’s economy is the strongest in the world,” said James Singer, a spokesperson for Biden-Harris 2024.
The report came during the second day of a two-part meeting by the Federal Reserve’s committee that sets interest rates. While the Fed is widely expected to make no moves, the report could make it easier for the central bank to justify cutting rates as early as September.
“We still need several more months of this, but the fundamentals are encouraging,” said Paul Ashworth, chief North America economist with Capital Economics in a research note to clients.
Ashworth called the idea of a September cut “still in play.”
The Fed’s preferred measure of inflation, an index of personal consumption expenditures released quarterly with the gross domestic product data, has been showing a tamer inflation picture for a while, but a calmer CPI would be welcome reinforcement.
Jason Furman, who headed the White House’s Council of Economic Advisers in the Barack Obama administration, called the report “a pleasant surprise” in a social media post.
“It gives me more hope about the last mile of inflation reduction. In my view it puts a second inflation-based rate cut in play for the year,” he said.
Financial markets also hailed the report. The Dow Jones Industrial Average was up more than 200 points after its release, and the broader S&P 500 hit a new high.
In May, prices were restrained by a 3.6% drop in prices for gasoline, the BLS said. That’s the biggest monthly decline since November.
But the agency said that decline was more than offset by a 0.4% increase in household shelter costs, which make up a larger portion of household spending.
The so-called core CPI, which excludes volatile food and energy prices, rose 0.2% in May and 3.4% over the last 12 months, a bit stronger than the overall CPI.
The BLS said more than two-thirds of that 3.4% annual gain was due to shelter prices, which posted a 5.4% increase over the 12 months ended in May. Other factors adding to that were auto insurance prices (up 20.3%), medical care (up 3.1%), personal care (up 2.9%) and recreation (up 1.3%).
The rise in housing and insurance prices has led some to call for the central bank to cut rates sooner.
“The Fed cannot bring down housing prices by keeping interest rates higher for longer, but it can make rent and homeownership even more unaffordable for families,” said Bilal Baydoun, director of policy and research at the liberal economic think tank Groundwork Collaborative.
“Waiting around will only delay the relief families need to get ahead,” Baydoun continued. “The time to cut rates is now.”